Turkey of the week excellent firm, but overvalued – MoneyWeek

bckbet注册 2020年4月20日 No Comments

Turkey of the week excellent firm, but overvalued – MoneyWeek

GeneralElectricisahuge,diversifiedgroup,organisedintofivemainunits。

Thefirstthreeareproduct-related:infrastructure(40%ofitspre-taxprofits),industrial(5%)andhealthcare(10%)。

Togethertheysellavastrangeofgoods,includingaircraftengines,trains,generators,turbines,nuclearreactorsandmedical-imagingequipment。

GeneralElectricalsoownsan80%stakeinNBCTV(10%ofitspre-taxprofits)andrunsthemonsterGeneralElectricCapitalServices(35%),oneoftheworld’slargestlenders。

GECapitalServicesnotonlyhas$639bnofassetsundermanagementfundedmainlyby$501bnofdebt,butalsooffersloanstoconsumersandcorporatesintheformofcredit-cards,carfinance,equipmentleasesandresidentialandcommercialmortgages。

Turnoverandunderlyingearningspersharecameinat$173bnand$2。

20in2007,with49%oftheearningsgeneratedbyGECapitalServicesduetotheunit’sexceptionallylowtaxrateof10%,comparedwith22%fortherestofGeneralElectric。

Thistaxsplitisimportant;ifGECapitalServices’futureprofitswereaffectedbythecreditcrunch,thentohitWallStreet’stargetstheotherunitswouldneedtogeneratedisproportionatelymoreprofittocompensateforanyshortfall。

Moreover,IthinkthereareminimalsynergiesacrossGeneralElectric’sfiveunits。

Tovaluethisconglomerate,oneneedstocalculateitssum-of-the-parts。

Sowhatiseachentityworth?

UndoubtedlythejewelinGeneralElectric’scrownisitslong-cycleinfrastructureunit,whichisexpandingrapidlyduetoemergingmarketdemandfornewpowerstations,watertreatmentplantsandaircraftengines。

Assuminga12timesoperatingprofit(EBIT)multiple,infrastructureisworthabout$130bn。

Iwouldvaluethesmallerhealthcare,NBC(80%share)andindustrialoperationsat$35bn,$25bnand$15bnrespectively。

ThebigunknownisGECapitalServices,whichtomelookslikeawell-runbank。

Iwouldratethelenderonamultipleof1。

5timesbook,orabout$85bn。

Barclays(worth$60bn)andRoyalBankofScotland($70bn)tradeoncorrespondingprice-to-bookmultiplesof1。

25and0。

8。

Byaddingallfivepiecestogether,a$290bnenterprisevalue($29pershare)isderivedforthewholegroup–or20%lessthantoday’sshareprice?

Lastly,theboardisguidingittowardsrevenuesandearningspershareof$195bnand$2。

42for2008,puttingthesharesonapunchyp/eof15。

Giventheacuterisksassociatedwithfinancialfirms,togetherwiththepossiblefalloutfromaneconomicslumponglobalinfrastructurespend,Isuggestyoutakeprofits。

First-quarterresultsaredueouton11April。

Recommendation:TAKEPROFITSat$38。

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